What changed in this filing

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Item 1. Financial Statements

2021-07-27 compared with 2021-04-28 · 336 added, 216 removed, 969 unchanged (36% of the section changed)

36 unchanged sentences

2,000 shares authorized;

960 shares issued and outstanding as of March 31, 2021 and December 31,

984 shares and

960 shares issued and outstanding as of June 30, 2021 and December 31,

2020, respectively

8 unchanged sentences

(in millions, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Automotive sales

31 unchanged sentences

The accompanying notes are an integral part of these consolidated financial statements.

C onsolidated Statements of Comprehensive Income (Loss)

C onsolidated Statements of Comprehensive Income

(in millions)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive income (loss):

Foreign currency translation adjustment

Comprehensive income (loss)

Comprehensive income

Comprehensive income attributable to

1 unchanged sentence

noncontrolling interests in subsidiaries

Comprehensive income (loss) attributable to common stockholders

Comprehensive income attributable to common stockholders

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

Stockholders'

Three Months Ended June 30, 2020

(Loss) Income

Balance as of March 31, 2020

Reclassification between equity and

mezzanine equity for convertible

Exercises of conversion feature of

convertible senior notes

Issuance of common stock for equity

incentive awards

Stock-based compensation

Distributions to noncontrolling

Net (loss) income

Other comprehensive income

Balance as of June 30, 2020

Noncontrolling

Comprehensive

Stockholders'

Six Months Ended June 30, 2020

Balance as of December 31, 2019

3 unchanged sentences

mezzanine equity for convertible

Exercises of conversion feature of

convertible senior notes

Issuance of common stock for equity

6 unchanged sentences

Distributions to noncontrolling

Net (loss) income

Other comprehensive loss

Balance as of June 30, 2020

Noncontrolling

Comprehensive

Stockholders'

Three Months Ended June 30, 2021

Balance as of March 31, 2021

Exercises of conversion feature of

convertible senior notes

Settlements of warrants

Issuance of common stock for equity

incentive awards

Stock-based compensation

Contributions from noncontrolling

Distributions to noncontrolling

Other comprehensive income

Balance as of June 30, 2021

Noncontrolling

2 unchanged sentences

Stockholders'

(Loss) Income

Six Months Ended June 30, 2021

Income (Loss)

Balance as of December 31, 2020

3 unchanged sentences

convertible senior notes

Settlements of warrants

Issuance of common stock for equity

1 unchanged sentence

Stock-based compensation

Contributions from noncontrolling

Distributions to noncontrolling

Other comprehensive loss

Balance as of March 31, 2021

Balance as of June 30, 2021

(1) Prior period results have been adjusted to reflect the five -for-one stock split effected in the form of a stock dividend in August 2020 .

2 unchanged sentences

(in millions)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and impairment

13 unchanged sentences

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash Flows from Investing Activities

15 unchanged sentences

Distributions paid to noncontrolling interests in subsidiaries

Payments for buy-outs of noncontrolling interests in subsidiaries

Net cash (used in) provided by financing activities

16 unchanged sentences

Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions.

On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays and a shortfall of microchip supply.

We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments and impediments to administrative activities supporting our product deliveries and deployments.

2 unchanged sentences

Unaudited Interim Financial Statements

The consolidated balance sheet as of March 31, 2021, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity, and the consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, as well as other information disclosed in the accompanying notes, are unaudited.

The consolidated balance sheet as of June 30, 2021, the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of redeemable noncontrolling interests and equity for the three and six months ended June 30, 2021 and 2020 and the consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, as well as other information disclosed in the accompanying notes, are unaudited.

The consolidated balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements as of that date.

12 unchanged sentences

The following table disaggregates our revenue by major source (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Automotive sales without resale value guarantee

11 unchanged sentences

We recognize revenue when control transfers upon delivery to customers in accordance with ASC 606 as a sale with a right of return when we do not believe the customer has a significant economic incentive to exercise the resale value guarantee provided to them at contract inception.

The total sales return reserve on vehicles previously sold under our buyback options program was $ 629 million and $ 703 million as of March 31, 2021 and December 31, 2020, respectively, of which $ 206 million and $ 202 million was short term, respectively.

Deferred revenue activity related to the access to our Supercharger network, internet connectivity, Full Self Driving (“FSD”) features and over-the-air software updates on automotive sales with and without resale value guarantee amounted to $ 2.00 billion and $ 1.93 billion as of March 31, 2021 and December 31, 2020, respectively.

The total sales return reserve on vehicles previously sold under our buyback options program was $ 592 million and $ 703 million as of June 30, 2021 and December 31, 2020, respectively, of which $ 215 million and $ 202 million was short term, respectively.

Deferred revenue is related to the access to our Supercharger network, internet connectivity, Full Self Driving (“FSD”) features and over-the-air software updates on automotive sales with and without resale value guarantee, which amounted to $ 2.13 billion and $ 1.93 billion as of June 30, 2021 and December 31, 2020, respectively.

Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date.

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 79 million and $ 57 million for the three months ended March 31, 2021 and 2020, respectively.

Of the total deferred revenue on automotive sales with and without resale value guarantees as of March 31, 2021, we expect to recognize $ 1.21 billion of revenue in the next 12 months.

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 157 million and $ 149 million for the six months ended June 30, 2021 and 2020, respectively.

Of the total deferred revenue on automotive sales with and without resale value guarantees as of June 30, 2021, we expect to recognize $ 1.32 billion of revenue in the next 12 months.

The remaining balance will be recognized over the performance period which is generally the expected ownership life of the vehicle or the eight-year life of the vehicle.

4 unchanged sentences

We recognize revenue on the sale of automotive regulatory credits at the time control of the regulatory credits is transferred to the purchasing party as automotive sales revenue in the consolidated statements of operations.

Deferred revenue related to sales of automotive regulatory credits was $ 61 million and $ 21 million as of March 31, 2021 and December 31, 2020, respectively.

We expect to recognize the majority of the deferred revenue as of March 31, 2021 in the next 12 months .

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was immaterial for the three months ended March 31, 2021 and 2020, respectively.

Deferred revenue related to sales of automotive regulatory credits was $ 42 million and $ 21 million as of June 30, 2021 and December 31, 2020, respectively.

We expect to recognize the majority of the deferred revenue as of June 30, 2021 in the next 12 months .

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was immaterial and $ 140 million for the six months ended June 30, 2021 and 2020, respectively.

Automotive Leasing Revenue

Direct Sales-Type Leasing Program

For the three months ended March 31, 2021, we recognized $ 42 million of sales-type leasing revenue and $ 26 million of sales-type leasing cost of revenue.

There was no sales-type leasing revenue or associated cost of revenue recognized in the three months ended March 31, 2020 as we had not launched this offering.

For the three and six months ended June 30, 2021, we recognized $ 55 million and $ 97 million, respectively, of sales-type leasing revenue and $ 36 million and $ 62 million, respectively, of sales-type leasing cost of revenue.

There was no material sales-type leasing revenue or associated cost of revenue recognized in the three and six months ended June 30, 2020 as we introduced this offering in volume during the third quarter of 2020.

Net investment in sales-type leases, which is the sum of the present value of the future contractual lease payments, is presented on the consolidated balance sheet as a component of Prepaid expenses and other current assets for the current portion and as Other assets for the long-term portion.

Lease receivables relating to sales-type leases are presented on the consolidated balance sheet as follows (in millions):

March 31, 2021

June 30, 2021

December 31, 2020

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We record as deferred revenue any non-refundable amounts that are collected from customers related to fees charged for prepayments and remote monitoring service and operations and maintenance service, which is recognized as revenue ratably over the respective customer contract term.

As of March 31, 2021 and December 31, 2020, deferred revenue related to such customer payments amounted to $ 195 million and $ 187 million, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 33 million and $ 21 million for the three months ended March 31, 2021 and 2020 respectively.

As of March 31, 2021, total transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied for contracts with an original expected length of more than one year was $ 107 million.

As of June 30, 2021 and December 31, 2020, deferred revenue related to such customer payments amounted to $ 217 million and $ 187 million, respectively.

Revenue recognized from the deferred revenue balance as of December 31, 2020 and 2019 was $ 66 million and $ 28 million for the six months ended June 30, 2021 and 2020, respectively.

As of June 30, 2021, total transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied for contracts with an original expected length of more than one year was $ 149 million.

Of this amount, we expect to recognize $ 8 million in the next 12 months and the remaining over a period up to 27 years.

There are transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.

As of March 31, 2021 and December 31, 2020, the aggregate balances of our gross unrecognized tax benefits were $ 387 million and $ 380 million, respectively, of which $ 356 million and $ 353 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

As of June 30, 2021 and December 31, 2020, the aggregate balances of our gross unrecognized tax benefits were $ 396 million and $ 380 million, respectively, of which $ 357 million and $ 353 million, respectively, would not give rise to changes in our effective tax rate since these tax benefits would increase a deferred tax asset that is currently fully offset by a valuation allowance.

The local government of Shanghai granted a beneficial corporate income tax rate of 15 % to certain eligible enterprises, compared to the 25 % statutory corporate income tax rate in China.

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Following this adoption, we utilize the if-converted method for diluted net income per share calculation of our convertible debt instruments (see Recent Accounting Pronouncements section below for further details).

During the three months ended March 31, 2021 , we increased net income attributable to common stockholders by $ 5 million to arrive at the numerator used to calculate diluted net income per share, which represents the interest expense recognized on the convertible debt instruments that were subject to this change in methodology.

During the three and six months ended June 30, 2021 , we increased net income attributable to common stockholders by $ 2 million and $ 6 million, respectively, to arrive at the numerator used to calculate diluted net income per share, which represents the interest expense recognized on the convertible debt instruments that were subject to this change in methodology.

Prior to the adoption, we applied the treasury stock method when calculating the potential dilutive effect, if any, of the following convertible senior notes which we intended to settle or have settled in cash the principal outstanding:

2 unchanged sentences

However, our convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive.

Warrants which have a strike price above our average share price during the period were out of the money and were not included in the tables below.

Warrants will be included in the weighted-average shares used in computing basic net income per share of common stock in the period(s) they are settled.

The strike price on the warrants were below our average share price during the period and were in the money and included in the tables below.

Warrants have been included in the weighted-average shares used in computing basic net income per share of common stock in the period(s) they are settled.

The following table presents the reconciliation of basic to diluted weighted average shares used in computing net income per share of common stock attributable to common stockholders, as adjusted to give effect to the five -for-one stock split effected in the form of a stock dividend in August 2020 (the “Stock Split”) (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted average shares used in computing

5 unchanged sentences

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income per share of common stock attributable to common stockholders, because their effect was anti-dilutive, as adjusted to give effect to the Stock Split (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Stock-based awards

Convertible senior notes (1)

(1) Under the modified retrospective method of adoption of ASU 2020-06, the dilutive impact of convertible senior notes was calculated using the if-converted method for the three months ended March 31, 2021.

Certain convertible senior notes were calculated using the treasury stock method for the three months ended March 31, 2020.

Certain convertible senior notes were calculated using the treasury stock method for the three and six months ended June 30, 2020.

Refer to discussion above for further details .

1 unchanged sentence

We maintain certain cash balances restricted as to withdrawal or use.

Our restricted cash is comprised primarily of cash as collateral for our sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities and certain operating leases.

In addition, restricted cash includes cash received from certain fund investors that have not been released for use by us and cash held to service certain payments under various secured debt facilities.

Our restricted cash is comprised primarily of cash held to service certain payments under various secured debt facilities.

In addition, restricted cash includes cash held as collateral for certain permits as well as sales to lease partners with a resale value guarantee, letters of credit, real estate leases, insurance policies, credit card borrowing facilities, certain operating leases and cash received from certain fund investors that have not been released for use by us.

We record restricted cash as other assets in the consolidated balance sheets and determine current or non-current classification based on the expected duration of the restriction.

14 unchanged sentences

MyPower Customer Notes Receivable

As of March 31, 2021 and December 31, 2020, the total outstanding balance of MyPower customer notes receivable, net of allowance for credit losses, was $ 324 million and $ 334 million, respectively, of which $ 10 million and $ 9 million were due in the next 12 months as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, the allowance for credit losses was $ 45 million .

In addition, there were no material non-accrual or past due customer notes receivable as of March 31, 2021 and December 31, 2020 .

As of June 30, 2021 and December 31, 2020, the total outstanding balance of MyPower customer notes receivable, net of allowance for credit losses, was $ 315 million and $ 334 million, respectively, of which $ 11 million and $ 9 million were due in the next 12 months as of June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021 and December 31, 2020, the allowance for credit losses was $ 45 million.

In addition, there were no material non-accrual or past due customer notes receivable as of June 30, 2021 and December 31, 2020 .

Concentration of Risk

2 unchanged sentences

These deposits are typically in excess of insured limits.

As of March 31, 2021 and December 31, 2020 , no entity represented 10 % or more of our total accounts receivable balance.

As of June 30, 2021 and December 31, 2020 , no entity represented 10 % or more of our total accounts receivable balance.

The risk of concentration for our convertible note hedges and interest rate swaps is mitigated by transacting with several highly-rated multinational banks.

1 unchanged sentence

Operating Lease Vehicles

The gross cost of operating lease vehicles as of March 31, 2021 and December 31, 2020 was $ 3.89 billion and $ 3.54 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 498 million and $ 446 million as of March 31, 2021 and December 31, 2020 , respectively.

The gross cost of operating lease vehicles as of June 30, 2021 and December 31, 2020 was $ 4.34 billion and $ 3.54 billion, respectively.

Operating lease vehicles on the consolidated balance sheets are presented net of accumulated depreciation of $ 595 million and $ 446 million as of June 30, 2021 and December 31, 2020 , respectively.

Digital Assets, Net

During the three months ended March 31, 2021, we purchased an aggregate of $ 1.50 billion in digital assets, comprised solely of bitcoin.

In addition, during the three months ended March 31, 2021, we began accepting bitcoin as a payment for sales of certain of our products in specified regions, subject to applicable laws.

We account for such non-cash consideration at the time we enter into transactions with our customers in accordance with the non-cash consideration guidance included in the Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , based on the then current quoted market prices of bitcoin.

During the six months ended June 30, 2021, we purchased an aggregate of $ 1.50 billion in bitcoin.

In addition, during the three months ended March 31, 2021, we accepted bitcoin as a payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021.

We may in the future restart the practice of transacting in cryptocurrencies ("digital assets") for our products and services.

We currently account for all digital assets held as a result of these transactions as indefinite-lived intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other .

We have ownership of and control over our bitcoin and we may use third-party custodial services to secure it.

We have ownership of and control over our digital assets and we may use third-party custodial services to secure it.

The digital assets are initially recorded at cost and are subsequently remeasured on the consolidated balance sheet at cost, net of any impairment losses incurred since acquisition.

We determine the fair value of our bitcoin on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is its principal market for bitcoin (Level 1 inputs).

We determine the fair value of our digital assets on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement , based on quoted prices on the active exchange(s) that we have determined is the principal market for such assets (Level 1 inputs).

We perform an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on active exchanges, indicate that it is more likely than not that our digital assets are impaired.

In determining if an impairment has occurred, we consider the lowest market price of one bitcoin quoted on the active exchange since acquiring the bitcoin.

In determining if an impairment has occurred, we consider the lowest market price of one unit of digital asset quoted on the active exchange since acquiring the digital asset.

If the then current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined.

11 unchanged sentences

Warranty expense is recorded as a component of Cost of revenues in the consolidated statements of operations.

Due to the magnitude of our automotive business, accrued warranty balance was primarily related to our automotive segment.

Due to the magnitude of our automotive business, accrued warranty balance is primarily related to our automotive segment.

Accrued warranty activity consisted of the following (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Accrued warranty—beginning of period

5 unchanged sentences

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

In March 2020, the FASB issued ASU No.

2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848).

The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The ASU is effective as of March 12, 2020 through December 31, 2022.

We will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

The ASU is currently not expected to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

4 unchanged sentences

We adopted ASU 2019-12 starting 2021, which did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (Topic 848).

The ASU is effective as of March 12, 2020 through December 31, 2022.

We continue to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

We adopted ASU 2020-04 during 2021.

The ASU has not and is currently not expected to have a material impact on our consolidated financial statements.

In May 2021, the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

The ASU addresses the previous lack of specific guidance in the accounting standards codification related to modifications or exchanges of freestanding equity-classified written call options (such as warrants) by specifying the accounting for various modification scenarios.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for any periods after issuance to be applied as of the beginning of the fiscal year that includes the interim period.

We adopted the ASU during 2021 as of the beginning of our fiscal year, which did not have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

11 unchanged sentences

Due to the recombination of the equity conversion component of our convertible debt remaining outstanding, additional paid in capital and convertible senior notes (mezzanine equity) were reduced.

The removal of the remaining debt discounts recorded for this previous separation has the effect of increasing our net debt balance and the reduction of property, plant and equipment was related to previously capitalized interest.

The removal of the remaining debt discounts recorded for this previous separation had the effect of increasing our net debt balance and the reduction of property, plant and equipment was related to previously capitalized interest.

The prior period consolidated financial statements have not been retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods.

11 unchanged sentences

Accumulated deficit

The impact of adoption on our consolidated statements of operations for the three months ended March 31, 2021 was primarily to decrease net interest expense by $ 145 million and to decrease depreciation expense by an immaterial amount.

This had the effect of increasing our basic and diluted net income per share of common stock attributable to common stockholders for the three months ended March 31, 2021 by $ 0.15 and $ 0.13 , respectively.

The change in methodology to determine the denominator used in the calculation of diluted net income per share of common stock attributable to common stockholders contributed less than $ 0.01 of the increase by requiring the use of the if-converted method as discussed above.

The impact of adoption on our consolidated statements of operations for the three and six months ended June 30, 2021 was primarily to decrease net interest expense by $ 46 million and $ 191 million, respectively, and to decrease depreciation expense by immaterial amounts.

This had the effect of increasing our basic and diluted net income per share of common stock attributable to common stockholders by $ 0.05 and $ 0.04 , respectively, for the three months ended June 30, 2021 and by $ 0.20 and $ 0.18 , respectively, for the six months ended June 30, 2021 .

Note 3 –

Digital Assets, Net

During the three months ended March 31, 2021, we purchased and received $ 1.50 billion of bitcoin.

During the three months ended March 31, 2021, we recorded $ 27 million of impairment losses on bitcoin.

We also realized gains of $ 128 million through sales during the three months ended March 31, 2021.

During the six months ended June 30, 2021, we purchased and received $ 1.50 billion of bitcoin.

During the three and six months ended June 30, 2021, we recorded $ 23 million and $ 50 million, respectively, of impairment losses on such digital assets.

We also realized gains of $ 128 million in March 2021.

Such gains are presented net of impairment losses in Restructuring and other in the consolidated statement of operations.

As of March 31, 2021, the carrying value of our bitcoin held was $ 1.33 billion, which reflects cumulative impairments of $ 27 million.

The fair market value of bitcoin held as of March 31, 2021 was $ 2.48 billion .

As of June 30, 2021, the carrying value of our digital assets held was $ 1.31 billion, which reflects cumulative impairments of $ 50 million.

The fair market value of such digital assets held as of June 30, 2021 was $ 1.47 billion .

Note 4 –

Goodwill and Intangible Assets

Goodwill decreased $ 1 million within the automotive segment from $ 207 million as of December 31, 2020 to $ 206 million as of March 31, 2021 due to foreign currency translation adjustments during the three months ended March 31, 2021 .

There were no accumulated impairment losses as of March 31, 2021 and December 31, 2020.

Intangible Assets

Information regarding our intangible assets including assets recognized from our acquisitions was as follows (in millions):

March 31, 2021

June 30, 2021

December 31, 2020

11 unchanged sentences

Total future amortization expense for finite-lived intangible assets was estimated as follows (in millions):

Nine months ending December 31, 2021

Six months ending December 31, 2021

Note 5 –

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Our assets and liabilities that were measured at fair value on a recurring basis were as follows (in millions):

March 31, 2021

June 30, 2021

December 31, 2020

9 unchanged sentences

Our interest rate swaps outstanding were as follows (in millions):

March 31, 2021

June 30, 2021

December 31, 2020

7 unchanged sentences

Our interest rate swaps activity was as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Disclosure of Fair Values

5 unchanged sentences

The following table presents the estimated fair values and the carrying values (in millions):

March 31, 2021

June 30, 2021

December 31, 2020

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We write-down inventory for any excess or obsolete inventories or when we believe that the net realizable value of inventories is less than the carrying value.

During the three months ended March 31, 2021 and 2020, we recorded write-downs of $ 35 million in Cost of revenues and Research and development expenses and $ 45 million in Cost of revenues, respectively.

During the three and six months ended June 30, 2021, we recorded write-downs of $ 35 million and $ 70 million, respectively, in Cost of revenues and Research and development expenses.

During the three and six months ended June 30, 2020, we recorded write-downs of $ 37 million and $ 82 million, respectively, in Cost of revenues.

Note 7 –

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Interest on outstanding debt is capitalized during periods of significant capital asset construction and amortized over the useful lives of the related assets.

During the three months ended March 31, 2021 and 2020, we capitalized $ 15 million and $ 10 million, respectively, of interest.

Depreciation expense during the three months ended March 31, 2021 and 2020 was $ 424 million and $ 371 million, respectively.

Gross property, plant and equipment under finance leases as of March 31, 2021 and December 31, 2020 was $ 2.34 billion and $ 2.28 billion, respectively, with accumulated depreciation of $ 907 million and $ 816 million, respectively.

During the three and six months ended June 30, 2021, we capitalized $ 23 million and $ 38 million, respectively, of interest.

During the three and six months ended June 30, 2020, we capitalized $ 10 million and $ 20 million, respectively, of interest.

Depreciation expense during the three and six months ended June 30, 2021 was $ 461 million and $ 885 million, respectively.

Depreciation expense during the three and six months ended June 30, 2020 was $ 356 million and $ 727 million, respectively.

Gross property, plant and equipment under finance leases as of June 30, 2021 and December 31, 2020 was $ 2.43 billion and $ 2.28 billion, respectively, with accumulated depreciation of $ 1.01 billion and $ 816 million, respectively.

Panasonic has partnered with us on Gigafactory Nevada with investments in the production equipment that it uses to manufacture and supply us with battery cells.

4 unchanged sentences

Depreciation on Panasonic production equipment is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the respective assets.

As of March 31, 2021 and December 31, 2020, we had cumulatively capitalized costs of $ 1.79 billion and $ 1.77 billion, respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.

As of June 30, 2021 and December 31, 2020, we had cumulatively capitalized costs of $ 1.79 billion and $ 1.77 billion, respectively, on the consolidated balance sheets in relation to the production equipment under our Panasonic arrangement.

Note 8 –

Accrued Liabilities and Other

As of March 31, 2021 and December 31, 2020, accrued liabilities and other current liabilities consisted of the following (in millions):

As of June 30, 2021 and December 31, 2020, accrued liabilities and other current liabilities consisted of the following (in millions):

Accrued purchases (1)

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Other Long-Term Liabilities

As of March 31, 2021 and December 31, 2020, other long-term liabilities consisted of the following (in millions):

As of June 30, 2021 and December 31, 2020, other long-term liabilities consisted of the following (in millions):

Operating lease liabilities

5 unchanged sentences

Note 10 –

The following is a summary of our debt and finance leases as of March 31, 2021 (in millions):

The following is a summary of our debt and finance leases as of June 30, 2021 (in millions):

Net Carrying Value

4 unchanged sentences

Solar Bonds and other Loans

June 2021 - January 2031

October 2021 - January 2031

Total recourse debt

4 unchanged sentences

September 2024 - February 2048

China Loan Agreements

June 2021 - December 2024

Cash Equity Debt

6 unchanged sentences

Automotive Lease-backed Credit Facilities

September 2022 - November 2022

Solar Revolving Credit Facility and

June 2022 - February 2033

Not applicable

September 2022

February 2033

Total non-recourse debt

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The debt discounts were updated as of January 1, 2021 for our convertible notes with the adoption of ASU 2020-06 as discussed in Note 2, Summary of Significant Accounting Policies .

As of March 31, 2021, we were in material compliance with all financial debt covenants, which include minimum liquidity and expense-coverage balances and ratios.

As of June 30, 2021, we were in material compliance with all financial debt covenants, which include minimum liquidity and expense-coverage balances and ratios.

2021 Notes, 2022 Notes and 2024 Notes

During the first quarter of 2021, the closing price of our common stock exceeded 130 % of the applicable conversion price of each of our 2022 Notes and 2024 Notes on at least 20 of the last 30 consecutive trading days of the quarter;

causing the 2022 Notes and 2024 Notes to be convertible by their holders during the second quarter of 2021.

As we now expect to settle a portion of the 2024 Notes in the second quarter of 2021, we reclassified $ 51 million of the carrying value of the 2024 Notes from debt and finance leases, net of current portion to current portion of debt and finance leases on our consolidated balance sheet as of March 31, 2021.

Should the closing price conditions be met in a future quarter for any of these notes, such notes will be convertible at their holders’

During the first two quarters of 2021, the closing price of our common stock continued to exceed 130 % of the applicable conversion price of each of our 2022 Notes and 2024 Notes on at least 20 of the last 30 consecutive trading days of the quarter;

causing the 2022 Notes and 2024 Notes to be convertible by their holders during the second and third quarters of 2021.

As we now expect to settle a portion of the 2024 Notes in the third quarter of 2021, we reclassified $ 7 million of the carrying value of the 2024 Notes from debt and finance leases, net of current portion to current portion of debt and finance leases on our consolidated balance sheet as of June 30, 2021.

Should the closing price conditions continue to be met in a future quarter for any of these notes, such notes will be convertible at their holders’

option during the immediately following quarter.

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As a result of this adoption, we have de-recognized the remaining debt discounts on the 2022 Notes and 2024 Notes and therefore no longer recognize any amortization of debt discounts as interest expense (see Note 2, Summary of Significant Accounting Policies ).

During the first quarter of 2021, $ 422 million, $ 184 million and $ 843 million in aggregate principal amount of the 2021 Notes, 2022 Notes and 2024 Notes, respectively, were settled for $ 422 million, $ 184 million and $ 843 million in cash for their par amount, and the issuance of 5.3 million, 2.5 million and 12.5 million shares of our common stock for the conversion premium, respectively.

During the first two quarters of 2021, $ 422 million, $ 372 million and $ 1.11 billion in aggregate principal amount of the 2021 Notes, 2022 Notes and 2024 Notes, respectively, were settled for $ 422 million, $ 372 million and $ 1.11 billion in cash for their par amount, and the issuance of 5.3 million, 5.1 million and 16.4 million shares of our common stock for the conversion premium, respectively.

The note hedges we entered into in connection with the issuance of the 2021 Notes, 2022 Notes and 2024 Notes were automatically settled with the respective conversions of the 2021 Notes, 2022 Notes and 2024 Notes, resulting in the receipt of 5.3 million, 5.1 million and 16.4 million shares of our common stock, respectively.

In March 2021, the 2021 Notes were fully settled.

Additionally, during the second quarter of 2021, we settled portions of the warrants entered into in connection with the issuance of the 2021 Notes and 2024 Notes, resulting in the issuance of 7.9 million and 9.2 million shares of our common stock, respectively.

On July 16, 2021, we issued a notice of redemption to the holders of the 2025 Notes informing the holders that we will redeem the notes in full in August 2021 at a redemption price equal to 102.65 % of outstanding principal amount, plus accrued and unpaid interest, if any.

Automotive Asset-backed Notes and Warehouse Agreements

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In April 2021, we fully repaid the $ 614 million in aggregate principal of our secured term loan facility in connection with the construction of Gigafactory Shanghai (the “Fixed Asset Facility”) and the facility was terminated.

After the termination, the $ 758 million of unused commitment under the Fixed Asset Facility included in the debt and finance lease table as of March 31, 2021 above was no longer available.

In June 2021, our Working Capital Loan Contract entered in May 2020 (the “2020 China Working Capital Facility”) matured and the facility was terminated.

Solar Term Loan

In January 2021, our Solar Term Loan matured and was repaid.

Automotive Lease-backed Credit Facilities

In June 2021, we fully repaid $ 32 million in aggregate principal of our Automotive Lease-backed Credit Facilities and terminated one of the facilities.

Solar Revolving Credit Facility and other Loans

In April 2021, we fully repaid the $ 67 million in aggregate principal of our Solar Revolving Credit Facility and the facility was terminated.

Interest Expense

The following table presents the interest expense related to the contractual interest coupon, the amortization of debt issuance costs and the amortization of debt discounts on our convertible senior notes with cash conversion features, which include the 2021 Notes, the 2022 Notes and the 2024 Notes (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Contractual interest coupon

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Amortization of debt discounts (1)

(1) Under the modified retrospective method of adoption of ASU 2020-06, there was neither amortization of debt discounts, nor losses on extinguishment of debt recognized for the three months ended March 31, 2021.

Refer to discussion above for further details.

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The 2018 CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational milestones (performance conditions) and market conditions, assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date.

Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, which begins at $ 100.0 billion for the first tranche and increases by increments of $ 50.0 billion thereafter (based on both a six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our financial statements filed with our Forms 10-Q and/or 10-K.

Each of the 12 vesting tranches of the 2018 CEO Performance Award will vest upon certification by the Board of Directors that both (i) the market capitalization milestone for such tranche, which begins at $ 100.0 billion for the first tranche and increases by increments of $ 50.0 billion thereafter (based on both a six calendar month trailing average and a 30 calendar day trailing average, counting only trading days), has been achieved, and (ii) any one of the following eight operational milestones focused on total revenue or any one of the eight operational milestones focused on Adjusted EBITDA have been achieved for the four consecutive fiscal quarters on an annualized basis and subsequently reported by us in our consolidated financial statements filed with our Forms 10-Q and/or 10-K.

Adjusted EBITDA is defined as net income (loss) attributable to common stockholders before interest expense, provision (benefit) for income taxes, depreciation and amortization and stock-based compensation.

Upon vesting and exercise, including the payment of the exercise price of $ 70.01 per share, our CEO must hold shares that he acquires for five years post-exercise, other than a cashless exercise where shares are simultaneously sold to pay for the exercise price and any required tax withholding.

The achievement status of the operational milestones as of March 31, 2021 is provided below.

The achievement status of the operational milestones as of June 30, 2021 is provided below.

Although an operational milestone is deemed achieved in the last quarter of the relevant annualized period, it may be certified only after the financial statements supporting its achievement have been filed with our Forms 10-Q and/or 10-K.

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Achievement Status

(1) Achieved in the first quarter of 2021 and expected to be certified following the filing of this Quarterly Report on Form 10-Q.

Stock-based compensation under the 2018 CEO Performance Award represents a non-cash expense and is recorded as a Selling, general, and administrative operating expense in our consolidated statement of operations.

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The “expected full achievement time”

at any given time is the later of (i) the expected operational milestone achievement time (if the related operational milestone has not yet been achieved) and (ii) the expected market capitalization milestone achievement time (if the related market capitalization milestone has not yet been achieved).

We immediately recognize a catch-up expense for all accumulated expense for the quarters from the grant date through the quarter in which the operational milestone was first deemed probable of being achieved.

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Therefore, when market capitalization milestones are achieved earlier than originally forecasted, for example due to periods of rapid stock price appreciation, this has resulted, and may result in the future, in higher catch-up expenses and the remaining expenses being recognized over shorter periods of time at a higher per-quarter rate.

During the first quarter of 2021, all remaining market capitalization milestones except for the milestone relating to $ 650.0 billion were achieved.

As of June 30, 2021, all market capitalization milestones were achieved.

During the first quarter of 2021, the operational milestone of annualized revenue of $ 55.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $ 116 million.

As of March 31, 2021, we had $ 129 million of total unrecognized stock-based compensation expense for the operational milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 0.9 years.

As of March 31, 2021, we had unrecognized stock-based compensation expense of $ 548 million for the operational milestones that were considered not probable of achievement.

For the three months ended March 31, 2021 and 2020 we recorded stock-based compensation expense of $ 299 million and $ 66 million related to the 2018 CEO Performance Award, respectively.

During the second quarter of 2021, the operational milestone of annualized Adjusted EBITDA of $ 10.0 billion became probable of being achieved and consequently, we recognized a catch-up expense of $ 124 million.

As of June 30, 2021, we had $ 105 million of total unrecognized stock-based compensation expense for the operational milestones that were considered probable of achievement, which will be recognized over a weighted-average period of 0.7 years.

As of June 30, 2021, we had unrecognized stock-based compensation expense of $ 396 million for the operational milestones that were considered not probable of achievement.

For the three and six months ended June 30, 2021, we recorded stock-based compensation expense of $ 176 million and $ 475 million, respectively, related to the 2018 CEO Performance Award, and $ 167 million and $ 233 million, respectively, for the same periods in 2020.

Summary Stock-Based Compensation Information

The following table summarizes our stock-based compensation expense by line item in the consolidated statements of operations (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenues

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Given that we would have met all targets originally required as of April 30, 2020 if they had been measured prior to the mandated reduction of operations in March 2020, and we are currently in excess of such targets relating to investments and personnel in the State of New York, we do not currently expect any issues meeting our applicable obligations following this expected deferral or in the years beyond.

However, if our expectations as to the costs and timelines of our investment and operations at Buffalo or our production ramp of the Solar Roof prove incorrect, we may incur additional expenses or substantial payments to the SUNY Foundation.

Operating Lease Arrangement in Shanghai, China

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previously-filed motion for summary judgment.

Fact and expert discovery is complete, and the case was set for trial in March 2020 until it was postponed by the Court due to safety precautions concerning COVID-19.

The current dates for the trial are from July 12 to July 23, 2021, subject to change based on any further safety measures implemented by the Court.

The case was set for trial in March 2020 until it was postponed by the Court due to safety precautions concerning COVID-19.

The trial was held from July 12 to July 23, 2021, to be followed by certain post-trial proceedings .

These plaintiffs and others filed parallel actions in the U.S.

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Our answer was filed on December 3, 2019, and trial is set for April 2022.

Fact discovery is ongoing.

Litigation Related to Directors’

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Defendants filed their answer on September 17, 2020.

Trial is set for September 2022, and fact discovery is ongoing.

Trial is set for December 2022.

Litigation Relating to Potential Going Private Transaction

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We have determined that the funds are variable interest entities (“VIEs”) and we are the primary beneficiary of these VIEs by reference to the power and benefits criterion under ASC 810, Consolidation .

We have considered the provisions within the agreements, which grant us the power to manage and make decisions that affect the operation of these VIEs, including determining the solar energy systems or vehicles and the associated customer contracts to be sold or contributed to these VIEs, redeploying solar energy systems or vehicles and managing customer receivables.

We have considered the provisions within the agreements, which grant us the power to manage and make decisions that affect the operation of these VIEs, including determining the solar energy systems and the associated customer contracts to be sold or contributed to these VIEs, redeploying solar energy systems and managing customer receivables.

We consider that the rights granted to the fund investors under the agreements are more protective in nature rather than participating.

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The following table presents revenues and gross profit by reportable segment (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Automotive segment

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The following table presents revenues by geographic area based on the sales location of our products (in millions):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

United States

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We also offer maintenance, installation, operation, financial and other services related to our products.

In 2021, we have produced 180,338 vehicles and delivered 184,877 vehicles through the first quarter.

We are currently focused on increasing vehicle production and capacity, improving and developing and battery technologies, increasing the affordability and efficiency of our vehicles, expanding our global infrastructure and introducing our next vehicles.

In 2021, we have deployed 445 GWh of energy storage products and 92 megawatts of solar energy systems through the first quarter.

In 2021, we have produced 386,759 vehicles and delivered 386,181 vehicles through the second quarter.

We are currently focused on increasing vehicle production and capacity, improving and developing battery technologies, improving our FSD and Autopilot capabilities, increasing the affordability and efficiency of our vehicles and expanding our global infrastructure.

In 2021, we have deployed 1.72 GWh of energy storage products and 177 megawatts of solar energy systems through the second quarter.

We are currently focused on ramping production of energy storage products, improving our Solar Roof installation capability and efficiency and increasing market share of retrofit solar energy systems.

During the three months ended March 31, 2021, we recognized total revenues of $10.39 billion, representing an increase of $4.40 billion over the three months ended March 31, 2020.

During the three and six months ended June 30, 2021, we recognized total revenues of $11.96 billion and $22.35 billion, respectively, representing increases of $5.92 billion and $10.33 billion, respectively, over the same periods ended June 30, 2020.

We continue to ramp production, build new manufacturing capacity and expand our operations to enable increased deliveries and deployments of our products and further revenue growth.

During the three months ended March 31, 2021, our net income attributable to common stockholders was $438 million, representing a favorable change of $422 million over the three months ended March 31, 2020.

We continue to focus on operational efficiencies, while we have seen an acceleration of non-cash stock-based compensation expense due to a rapid increase in our market capitalization and updates to our business outlook.

We ended the first quarter of 2021 with $17.14 billion in cash and cash equivalents, representing a decrease of $2.24 billion from the end of 2020.

Our cash flows provided by operating activities during the three month period ended March 31, 2021 was $1.64 billion, representing a favorable change of $2.08 billion compared to our cash flows used in operating activities during the period ended March 31, 2020 of $440 million, and capital expenditures amounted to $1.35 billion during the three month period ended March 31, 2021, compared to $455 million during the same period ended March 31, 2020.

Sustained growth has allowed our business to generally fund itself, but we will continue a number of capital-intensive projects in upcoming periods.

During the three and six months ended June 30, 2021, our net income attributable to common stockholders was $1.14 billion and $1.58 billion, respectively, representing favorable changes of $1.04 billion and $1.46 billion, respectively, over the same periods ended June 30, 2020.

We continue to focus on operational efficiencies, while we have seen an acceleration of non-cash stock-based compensation expense due to continued increases in our market capitalization and updates to our business outlook.

We ended the second quarter of 2021 with $16.23 billion in cash and cash equivalents, representing a decrease of $3.16 billion from the end of 2020.

Our cash flows provided by operating activities during the six month period ended June 30, 2021 was $3.77 billion, representing a favorable change of $3.24 billion compared to our cash flows provided by operating activities during the same period ended June 30, 2020 of $524 million, and capital expenditures amounted to $2.85 billion during the six month period ended June 30, 2021, compared to $1.00 billion during the same period ended June 30, 2020.

Sustained growth has allowed our business to generally fund itself, but we will continue investing in a number of capital-intensive projects in upcoming periods.

Management Opportunities, Challenges and Risks

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We have also previously been affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments.

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In development

We installed and tested the manufacturing equipment for our new versions of Model S and Model X in the first quarter of 2021 and we are in the early stages of ramping production.

We are focused on ramping these models and Model Y to at least their installed production capacities.

We have also worked to increase localization at Gigafactory Shanghai by introducing drive unit manufacturing and Model Y one-piece casting there.

The next phase of production growth will depend on the construction of Gigafactory Berlin and Gigafactory Texas, each of which is progressing as planned for production and deliveries beginning in late 2021, and where we will also add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range.

Consistent with our approach of innovating at new factories, we expect to pioneer there the mass production of these cells and our unique structural battery pack concept.

Our new version of Model S is in production, and we are focused on commencing the updated Model X deliveries and ramping all of our production vehicles to their installed production capacities.

Our current production continues to be affected by the industry-wide semiconductor and other component shortages, requiring additional workaround manufacturing and production design solutions to be implemented which may be difficult to sustain.

The next phase of production growth will depend on the construction of Gigafactory Berlin and Gigafactory Texas, each of which is progressing as planned for production beginning in late 2021, as well as our ability to add to our available sources of battery cell supply by manufacturing our own cells that we are developing to have high-volume output, lower capital and production costs and longer range.

Consistent with our approach of innovating manufacturing techniques at our new factories, we expect as well to pioneer new methods related to the mass production of these cells and our unique structural battery pack concept.

Our goals are to improve vehicle performance, decrease production costs and increase affordability.

However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the number of concurrent international projects and any future impact from events outside of our control such as the COVID-19 pandemic and any industry-wide component constraints.

However, these plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by the number of concurrent international projects, any industry-wide component constraints which may increase the number of manufacturing and production design workaround solutions required and any future impact from events outside of our control such as the COVID-19 pandemic.

Moreover, we must meet ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles with each new factory.

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performance and functionality, including Autopilot, FSD and software features, and introducing anticipated future vehicles.

Moreover, we expect to benefit from ongoing electrification of the automotive sector and increasing environmental awareness.

Moreover, we expect to benefit from a recent spike in demand in the automotive industry generally, as well as ongoing electrification of the automotive sector and increasing environmental awareness.

However, we operate in a cyclical industry that is sensitive to trade, environmental and political uncertainty, all of which may also be compounded by any future global impact from the COVID-19 pandemic.

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As our deliveries increase, we must work constantly to prevent our vehicle delivery capability from becoming a bottleneck on our total deliveries.

Increasing the exports of vehicles manufactured at Gigafactory Shanghai has been effective in mitigating the strain on our deliveries, and we expect to benefit further from situating additional factories closer to local markets.

In any case, as we expand, we will have to continue to increase and staff our delivery, servicing and charging infrastructure, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost-effectiveness and customer satisfaction.

Increasing the exports of vehicles manufactured at Gigafactory Shanghai has been effective in mitigating the strain on our deliveries in markets outside of the United States, and we expect to benefit further from situating additional factories closer to local markets.

As we expand our manufacturing operations globally, we will have to continue to increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction.

In particular, we remain focused on increasing the capability and efficiency of our servicing operations.

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The long-term success of this business is dependent upon increasing margins through greater volumes.

We continue to increase the production of our energy storage products to meet high levels of demand.

For Powerwall, better availability and growing grid stability concerns drive higher interest, and we are emphasizing cross-selling with our residential solar energy products.

We remain committed to increasing our retrofit solar energy business by offering a low-cost and simplified online ordering experience.

We continue to increase the production of our energy storage products to meet high levels of demand, but such production is also sensitive to global component constraints.

For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones.

For Powerwall, better availability and growing grid stability concerns drive higher customer interest, and we are emphasizing cross-selling with our residential solar energy products.

We remain committed to growing our retrofit solar energy business by offering a low-cost and simplified online ordering experience.

In addition, we continue to improve our installation capabilities for Solar Roof by on-boarding and training a large number of installers and reducing the installation time dramatically.

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Owing and subject to the foregoing as well as the pipeline of announced projects under development and all other continuing infrastructure growth, we currently expect our capital expenditures to be $4.50 to $6.00 billion in 2021 and each of the next two fiscal years.

Given the breadth of our various planned projects in 2021, as we make progress on such projects we expect that our actual spend will be on the higher end of this range in 2021.

Our business has recently been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also facilitating positive cash generation.

On the other hand, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects.

Moreover, as our stock price has significantly increased recently, we have seen higher levels of early conversions of “in-the-money”

Moreover, as our stock price has significantly increased, we have seen higher levels of early conversions of “in-the-money”

convertible senior notes, which obligates us to deliver cash and or shares pursuant to the terms of those notes.

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Operating Expense Trends

As long as we see expanding sales, and excluding the potential impact of non-cash stock compensation expense attributable to the 2018 CEO Performance Award and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we additionally increase operational efficiency and process automation.

As long as we see expanding sales, and excluding the potential impact of non-cash stock compensation expense attributable to the 2018 CEO Performance Award and impairment charges on certain assets as explained below, we generally expect operating expenses relative to revenues to decrease as we continue to increase operational efficiency and process automation.

In March 2018, our stockholders approved a performance-based stock option award to our CEO (the “2018 CEO Performance Award”), consisting of 12 vesting tranches contingent on the achievement of specified market capitalization and operational milestones.

We incur non-cash stock-based compensation expense for each tranche only after the related operational milestone initially becomes probable of being achieved based on a subjective assessment of our future financial performance, and if this happens following the grant date, we record at such time a cumulative catch-up expense that may be significant based on the length of time elapsed from the grant date.

Moreover, the remaining expense for that tranche is ratably recorded over the period remaining until the later of (i) the expected achievement of the relevant operational milestone (if it has not yet been achieved) and (ii) the expected achievement of the related market capitalization milestone (if it has not yet been achieved).

Upon the achievement of both milestones related to a tranche, all remaining associated expense is recognized immediately.

Because the market capitalization milestone achievements were generally expected to occur later than the related expected operational milestone achievements, the achievement of the former earlier than expected may increase the magnitude of any catch-up expense and/or accelerate the rate at which the remaining expense is recognized.

Since 2020, several operational milestones have become probable and/or have been achieved and all market capitalization milestones except one have been achieved, resulting in the recognition or acceleration of related expense earlier than anticipated and within a relatively short period of time.

Since 2020, several operational milestones have become probable and/or have been achieved and all market capitalization milestones have been achieved, resulting in the recognition or acceleration of related expense earlier than anticipated and within a relatively short period of time.

See Note 11, Equity Incentive Plans—2018 CEO Performance Award , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the stock-based compensation relating to the 2018 CEO Performance Award.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin and began accepting bitcoin as a form of payment for certain of our products in specified regions, subject to applicable laws.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin and accepted bitcoin as a form of payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021.

We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.

As with any investment and consistent with how we manage fiat-based cash and cash-equivalent accounts, we may increase or decrease our holdings of digital assets at any time based on the needs of the business and our view of market and environmental conditions.

Digital assets are considered indefinite-lived intangible assets under applicable accounting rules.

Accordingly, any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale.

As we generally intend to hold these assets long-term, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase.

For example, in the first quarter of 2021, we recorded approximately $27 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $128 million on certain sales of bitcoin by us.

For any digital assets held now or in the future, these charges may negatively impact our profitability in the periods in which such impairments occur even if the overall market values of these assets increase.

For example, in the six month period ended June 30, 2021, we recorded approximately $50 million of impairment losses resulting from changes to the carrying value of our bitcoin and gains of $128 million on certain sales of bitcoin by us.

Critical Accounting Policies and Estimates

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On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chain issues, such as a shortfall of semiconductor supply.

During 2020, we were also affected by temporary manufacturing closures, employment and compensation adjustments, and impediments to administrative activities supporting our product deliveries and deployments.

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The impact of the idle capacity charges incurred during the first half of 2020 were almost entirely offset by our cost savings initiatives and payroll related benefits.

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

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Services and other revenue consists of non-warranty after-sales vehicle services, sales of used vehicles, retail merchandise, sales by our acquired subsidiaries to third party customers and vehicle insurance revenue.

Automotive sales revenue increased $3.81 billion, or 78%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to an increase of 96,464 Model 3 and Model Y cash deliveries year over year from production ramping at both Gigafactory Shanghai and the Fremont Factory.

There was also an increase of $164 million from additional sales of regulatory credits to $518 million in the three months ended March 31, 2021.

The increases in automotive sales revenue were partially offset by a decrease from 8,380 fewer Model S and Model X cash deliveries at a slightly lower combined average selling price in the three months ended March 31, 2021 compared to the prior period as we phase out the inventory of older models to get ready for the introduction of the updated versions.

Additionally, there was a decrease in the combined average selling price of Model 3 and Model Y primarily due to a higher proportion of Standard Range variants in our sales mix compared to the prior period.

Automotive leasing revenue increased $58 million, or 24%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to an increase in cumulative vehicles under our direct operating lease program and the introduction of direct sales-type leasing programs which we began offering in volume during the third quarter of 2020 where we recognize all revenue associated with the sales-type lease upon delivery to the customer.

Automotive sales revenue increased $4.96 billion, or 101%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to an increase of 107,272 Model 3 and Model Y cash deliveries and an increase in the average selling price of Model 3 in the three months ended June 30, 2021 compared to the same period in the prior year.

These increases were partially offset by a decrease from 7,532 fewer Model S and Model X cash deliveries in the three months ended June 30, 2021 compared to the prior period as we started delivering the new Model S as well as reductions in the average selling price of Model Y due to the regional sales mix compared to the prior period.

There was also a decrease of $74 million from sales of regulatory credits to $354 million in the three months ended June 30, 2021.

Automotive sales revenue increased $8.78 billion, or 90%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to an increase of 203,736 Model 3 and Model Y cash deliveries year over year from production ramping at both Gigafactory Shanghai and the Fremont Factory.

There was also an increase of $90 million from additional sales of regulatory credits to $872 million in the six months ended June 30, 2021.

The increases in automotive sales revenue were partially offset by a decrease from 15,912 fewer Model S and Model X cash deliveries in the six months ended June 30, 2021 compared to the prior period as we started delivering the new Model S as well as reductions in the average selling price of Model Y due to the regional sales mix compared to the prior period.

Automotive leasing revenue increased $64 million, or 24%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Automotive leasing revenue increased $122 million, or 24%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to an increase in cumulative vehicles under our direct operating lease program and the introduction of direct sales-type leasing programs which we began offering in volume during the third quarter of 2020 where we recognize all revenue associated with the sales-type lease upon delivery to the customer.

These increases were partially offset by the decreases in automotive leasing revenue associated with our resale value guarantee leasing programs accounted for as operating leases as those portfolios have declined.

Services and other revenue increased $333 million, or 59%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to increases in used vehicle revenue driven by an increase in trade-ins, non-warranty maintenance services revenue as our fleet continues to grow and retail merchandise revenue.

Services and other revenue increased $464 million, or 95%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Services and other revenue increased $797 million, or 76%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to an increase in used vehicle revenue driven by an increase in trade-ins, non-warranty maintenance services revenue as our fleet continues to grow and retail merchandise revenue.

Energy Generation and Storage Segment

Energy generation and storage revenue includes sales and leasing of solar energy generation and energy storage products, services related to such products and sales of solar energy systems incentives.

Energy generation and storage revenue increased by $201 million, or 69%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to increases in deployments of solar cash and loan jobs, Powerwall and Megapack, partially offset by reduced average selling prices on our solar cash and loan jobs as a result of our low cost solar strategy introduced mid-2020.

Energy generation and storage revenue increased by $431 million, or 116%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Energy generation and storage revenue increased by $632 million, or 95%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to increases in deployments of solar cash and loan jobs, Megapack and Powerwall, partially offset by reduced average selling prices on our solar cash and loan jobs as a result of our low cost solar strategy introduced mid-2020.

Cost of Revenues and Gross Margin

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

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Cost of services and other revenue also includes direct parts, material and labor costs and manufacturing overhead associated with the sales by our acquired subsidiaries to third party customers.

Cost of automotive sales revenue increased $2.76 billion, or 75%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to an increase of 96,464 Model 3 and Model Y cash deliveries, partially offset by a decrease in combined average Model 3 and Model Y costs per unit due to lower material, manufacturing, freight and duty costs from localized procurement and manufacturing in China, a higher sales mix of Standard Range trims and reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020.

Additionally, there was a decrease of 8,380 Model S and Model X cash deliveries in the three months ended March 31, 2021 compared to the prior period.

Cost of automotive leasing revenue increased $38 million, or 31%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to an increase in cumulative vehicles under our direct operating lease program and the introduction of direct sales-type leasing programs which we began offering in volume during the third quarter of 2020 where we recognize all cost of revenue associated with the sales-type lease upon delivery to the customer.

These increases were partially offset by the decreases in cost of automotive lease revenue associated with our resale value guarantee leasing programs which are accounted for as operating leases as those portfolios have declined.

Cost of services and other revenue increased $314 million, or 48%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to increases in used vehicle cost of revenue driven by an increase in trade-ins, costs to support our increase in non-warranty maintenance services revenue and costs of retail merchandise as our sales have increased.

Gross margin for total automotive remained relatively consistent at 26% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

There were increases from improvements of Model Y and Model 3 gross margins primarily from lower material, manufacturing, freight and duty costs from localized procurement and manufacturing in China and reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020.

Additionally, there was a positive impact from an increase of $164 million in sales of regulatory credits.

These increases were partially offset by a decrease in the combined average selling price of Model 3 and Model Y due to a higher proportion of Standard Range variants in our sales mix compared to the prior period.

Gross margin for total automotive & services and other segment increased from 21% to 23% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to the automotive gross margin impacts discussed above and an improvement in our services and other gross margin.

Additionally, there was a lower proportion of services and other, which operated at a lower gross margin than our automotive business, within the segment in the three months ended March 31, 2021 as compared to the prior period.

Cost of automotive sales revenue increased $3.41 billion, or 92%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to an increase of 107,272 Model 3 and Model Y cash deliveries and higher outbound freight and duties in China as Model 3 vehicles manufactured in Gigafactory Shanghai were exported to other regions offset by a decrease in combined average Model 3 and Model Y costs per unit due to lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China.

There was also reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020, in addition to idle capacity charges of $189 million due to the temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the three months ended June 30, 2020.

Additionally, there was a decrease of 7,532 Model S and Model X cash deliveries in the three months ended June 30, 2021 compared to the prior period as we started delivering the new Model S.

Cost of automotive sales revenue increased $6.16 billion, or 83%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to an increase of 203,736 Model 3 and Model Y cash deliveries and higher outbound freight and duties in China as Model 3 vehicles manufactured in Gigafactory Shanghai were exported to other regions offset by a decrease in combined average Model 3 and Model Y costs per unit due to lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China.

There were also reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020, in addition to idle capacity charges of $213 million due to the temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the six months ended June 30, 2020.

Additionally, there was a decrease of 15,912 Model S and Model X cash deliveries in the six months ended June 30, 2021 compared to the prior period as we started delivering the new Model S.

Cost of automotive leasing revenue increased $40 million, or 27%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Cost of automotive leasing revenue increased $78 million, or 29%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to an increase in cumulative vehicles under our direct operating lease program and the introduction of direct sales-type leasing programs which we began offering in volume during the third quarter of 2020 where we recognize all cost of revenue associated with the sales-type lease upon delivery to the customer.

These increases were also partially offset by the decreases in cost of automotive lease revenue associated with our resale value guarantee leasing programs which are accounted for as operating leases as those portfolios have declined.

Cost of services and other revenue increased $428 million, or 77%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Cost of services and other revenue increased $742 million, or 62%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to increases in used vehicle cost of revenue driven by an increase in trade-ins, costs to support our increase in non-warranty maintenance services revenue and costs of retail merchandise as our sales have increased.

Gross margin for total automotive increased from 25% to 28% in the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020.

There were increases from improvements of Model 3 and Model Y gross margins primarily from lower material, manufacturing, inbound freight and duty costs from localized procurement and manufacturing in China offset by higher outbound freight and duties in China as Model 3 vehicles manufactured in Gigafactory Shanghai were exported to other regions.

There were also reductions in Model Y average costs per unit as compared to the prior period due to temporary under-utilization of manufacturing capacity at lower production volumes during our production ramp in the first half of 2020, in addition to idle capacity charges of $189 million and $213 million in cost of automotive sales revenue due to the temporary suspension of production at the Fremont Factory and Gigafactory Nevada during the three and six months ended June 30, 2020, respectively .

These increases were partially offset by reductions in the average selling price of Model Y due to the regional sales mix compared to the prior period, in addition to impacts from sales of regulatory credits as discussed earlier.

Gross margin for total automotive & services and other segment increased from 22% to 26% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Gross margin for total automotive & services and other segment increased from 22% to 25% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to the automotive gross margin impacts discussed above and an improvement in our services and other gross margin.

Additionally, there was a lower proportion of services and other, which operated at a lower gross margin than our automotive business, within the segment in the three and six months ended June 30, 2021 as compared to the prior period.

Energy Generation and Storage Segment

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In agreements for solar energy system and PPAs where we are the lessor, the cost of revenue is primarily comprised of depreciation of the cost of leased solar energy systems, maintenance costs associated with those systems and amortization of any initial direct costs.

Cost of energy generation and storage revenue increased by $313 million, or 111%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to increases in deployments of solar cash and loan jobs, Solar Roof, Powerwall and Megapack and increased service maintenance costs on solar energy systems where we are the lessor, partially offset by reductions in average costs per unit of Solar Roof and solar cash and loan jobs from improved overhead utilization as deployments increased.

Cost of energy generation and storage revenue increased by $432 million, or 124%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Cost of energy generation and storage revenue increased by $745 million, or 118%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These increases were primarily due to increases in deployments of solar cash and loan jobs, Solar Roof, Megapack and Powerwall and increased service maintenance costs on solar energy systems where we are the lessor, partially offset by reductions in average costs per unit of Solar Roof and solar cash and loan jobs as deployments increased.

Although our average costs per unit of Solar Roof improved compared to the prior period, they still remain significant and contribute disproportionately to our cost of energy generation and storage revenue.

Gross margin for energy generation and storage decreased from 4% to -20% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 primarily due to a higher proportion of Solar Roof in our overall energy business which operated at lower gross margins as a result of temporary manufacturing underutilization during product ramp, increased service maintenance costs on solar energy systems where we are the lessor and lower gross margins in our energy storage business as we are ramping Megapack.

Gross margin for energy generation and storage decreased from 6% to 2% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Gross margin for energy generation and storage decreased from 5% to -6% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These decreases were primarily due to a higher proportion of Solar Roof in our overall energy business which operated at lower gross margins as a result of temporary manufacturing underutilization during product ramp, increased service maintenance costs on solar energy systems where we are the lessor and lower gross margins in our energy storage business as we are ramping Megapack.

Research and Development Expense

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

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Research and development (“R&D”) expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense.

R&D expenses increased $342 million, or 106%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The increase was primarily due to an $147 million increase in employee and labor related expenses due to an increase in headcount and increased payroll taxes related to appreciation of our stock price, a $122 million increase in R&D expensed materials and outside services and a $60 million increase in stock-based compensation expense.

R&D expenses increased $297 million, or 106%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The increase was primarily due to a $135 million increase in employee and labor related expenses due to an increase in headcount and increased payroll taxes related to appreciation of our stock price, a $76 million increase in R&D expensed materials, a $52 million increase in facilities, outside services, freight and depreciation expenses and a $31 million increase in stock-based compensation expense.

These increases were to support our expanding product roadmap such as the new versions of Model S and Model X and technologies including our proprietary battery cells.

R&D expenses as a percentage of revenue increased from 5% to 6% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

R&D expenses as a percentage of revenue stayed consistent at 5% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The is primarily due to the increase in total revenues from expanding sales.

R&D expenses increased $639 million, or 106%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase was primarily due to a $282 million increase in employee and labor related expenses due to an increase in headcount and increased payroll taxes related to appreciation of our stock price, a $177 million increase in R&D expensed materials, a $91 million increase in stock-based compensation expense and an $88 million increase in facilities, outside services, freight and depreciation expense.

These increases were to support our expanding product roadmap such as the new versions of Model S and Model X and technologies including our proprietary battery cells.

R&D expenses as a percentage of revenue increased from 5% to 6% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase is primarily due to the increase in our R&D expenses as detailed above, partially offset by an increase in total revenues from expanding sales.

Selling, General and Administrative Expense

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

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Selling, general and administrative (“SG&A”) expenses generally consist of personnel and facilities costs related to our stores, marketing, sales, executive, finance, human resources, information technology and legal organizations, as well as fees for professional and contract services and litigation settlements.

SG&A expenses increased $429 million, or 68%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

SG&A expenses increased $312 million, or 47%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The increase is primarily due to an increase of $186 million in employee and labor related expenses from increased headcount and increased payroll taxes related to appreciation of our stock price, an $86 million increase in office, information technology, facilities-related expenses, sales and marketing activities and other costs.

There was also an increase of $40 million in stock-based compensation expense, of which $9 million was attributable to the 2018 CEO Performance Award.

See Note 11, Equity Incentive Plans , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

SG&A expenses as a percentage of revenue decreased from 11% to 8% in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

This was driven by the increase in total revenue from expanding sales, despite an increase in our SG&A expenses as detailed above.

SG&A expenses increased $741 million, or 58%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The increase is primarily due to an increase of $313 million in stock-based compensation expense, of which $242 million was attributable to the 2018 CEO Performance Award.

We recorded stock-based compensation expense of $299 million in the three months ended March 31, 2021 for the 2018 CEO Performance Award compared to $66 million in the prior period.

The increase in expense under the 2018 CEO Performance Award was due to the catch-up expense of $116 million recognized in the three months ended March 31, 2021 when the operational milestone of annualized revenue of $55.0 billion became probable of being achieved as well as the acceleration of the expense related to the fifth and sixth tranches as their market capitalization milestones were achieved earlier than originally forecasted due to rapid appreciation of our stock price since 2020 (see Note 11, Equity Incentive Plans , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Additionally, there was an increase of $125 million in employee and labor related expenses from increased headcount and increased payroll taxes related to appreciation of our stock price.

SG&A expenses as a percentage of revenue remained relatively consistent at 10% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

There was a favorable impact from the increase in total revenue from expanding sales, partially offset by an increase in our SG&A expenses as detailed above.

The increase in expense under the 2018 CEO Performance Award was primarily due to an increase in catch-up expense of $160 million recognized in the six months ended June 30, 2021, when the operational milestone of annualized revenue of $55.0 billion and Adjusted EBITDA of $10.0 billion became probable of being achieved as compared to the six months ended June 30, 2020.

An additional $82 million was recognized in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, due to operational milestones being achieved earlier as well as the market capitalization milestones being achieved earlier than originally forecasted (see Note 11, Equity Incentive Plans , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

Additionally, there was an increase of $311 million in employee and labor related expenses from increased headcount and increased payroll taxes related to appreciation of our stock price, a $117 million increase in office, information technology, facilities-related expenses, sales and marketing activities and other costs.

SG&A expenses as a percentage of revenue decreased from 11% to 9% in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

This was driven by the increase in total revenue from expanding sales, despite an increase in our SG&A expenses as detailed above.

Restructuring and Other Expense

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

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Not meaningful

As a percentage of revenues

During the three months ended March 31, 2021, we realized gains of $128 million through sales of bitcoin and also recorded $27 million of impairment losses.

During the six months ended June 30, 2021 we realized gains of $128 million through sales of bitcoin.

Also, during the three and six months ended June 30, 2021, we recorded $23 million and $50 million, respectively, of impairment losses on bitcoin.

See Note 2, Summary of Significant Accounting Policies , and Note 3, Digital Assets, Net , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Interest Expense

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

1 unchanged sentence

As a percentage of revenues

Interest expense decreased by $70 million, or 41%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, on January 1, 2021, whereby we have de-recognized the remaining debt discounts on the 2022 Notes and 2024 Notes and therefore no longer recognize any amortization of debt discounts as interest expense, as well as the continued reduction in our overall debt balance.

Interest expense decreased by $95 million, or 56%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Interest expense decreased by $165 million, or 49%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

These decreases were primarily due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, on January 1, 2021, whereby we have de-recognized the remaining debt discounts on the 2022 Notes and 2024 Notes and therefore no longer recognize any amortization of debt discounts as interest expense, as well as the continued reduction in our overall debt balance.

See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Other Income (Expense), Net

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

Other income (expense), net

Not meaningful

As a percentage of revenues

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We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates.

Other income (expense), net, changed favorably by $82 million in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to a $60 million favorable change in the mark-to-market remeasurement of our interest rate swaps and favorable fluctuations in foreign currency exchange rates.

Other income (expense), net, changed favorably by $60 million in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to favorable fluctuations in foreign currency exchange rates.

Other income (expense), net, changed favorably by $142 million in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to favorable fluctuations in foreign currency exchange rates and a $53 million favorable change in the mark-to-market remeasurement of our interest rate swaps.

Provision for Income Taxes

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

1 unchanged sentence

Effective tax rate

Our provision for income taxes is $69 million with pre-tax income of $533 million for the three months ended March 31, 2021.

The provision for income taxes increased by $67 million, compared to $2 million provision for income taxes with pre-tax income of $70 million for the three months ended March 31, 2020.

The increase was primarily due to the substantial increases in taxable profits in our foreign jurisdictions year-over-year.

Our effective tax rate increased from 3% to 13% in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to substantial pre-tax income in the three months ended March 31, 2021 as compared to a small pre-tax income for the three months ended March 31, 2020.

Our provision for income taxes is $115 million with pre-tax income of $1.29 billion, resulting in quarterly effective tax rate of 9% for the three months ended June 30, 2021.

The provision for income taxes increased by $94 million, compared to $21 million provision for income taxes with pre-tax income of $150 million, resulting in quarterly effective tax rate of 14% for the three months ended June 30, 2020.

The increase in income taxes was primarily due to the substantial increase in pre-tax income, combined with changes in forecasted annual tax rate with mix of jurisdictional earnings.

Our provision for income taxes is $184 million with pre-tax income of $1.83 billion, resulting in year-to-date effective tax rate of 10% for the six months ended June 30, 2021.

The provision for income taxes increased by $161 million, compared to $23 million provision for income taxes with pre-tax income of $220 million, resulting year to date effective tax rate of 10% for the six months ended June 30, 2020.

The increase in income taxes was primarily due to the substantial increase in pre-tax income, combined with changes in forecasted annual tax rate with mix of jurisdictional earnings.

See Note 2, Summary of Significant Accounting Policies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in millions)

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Our net income attributable to noncontrolling interests and redeemable noncontrolling interests was related to financing fund arrangements.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $26 million, or 50%, in the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The change was primarily due to lower activities from new financing fund arrangements offset by a decrease in distributions to financing fund investors.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests increased by $11 million, or 44%, in the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The change was primarily due to lower activities from new financing fund arrangements.

Net income attributable to noncontrolling interests and redeemable noncontrolling interests decreased by $15 million, or 19%, in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The change was primarily due to a decrease in distributions to financing fund investors offset by lower activities from new financing fund arrangements.

Liquidity and Capital Resources

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Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early.

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following March 31, 2021, including to pay down near-term debt obligations, as well as in the long-term.

Accordingly, we believe that our current sources of funds will provide us with adequate liquidity during the 12-month period following June 30, 2021, including to pay down near-term debt obligations, as well as in the long-term.

See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs.

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However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.

As discussed in and subject to the considerations referenced in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Risks—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to support our projects globally to be $4.50 to $6.00 billion in 2021 and in each of the next two fiscal years.

In connection with our operations at Gigafactory Buffalo, we have an agreement to spend or incur $5.0 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York through December 31, 2029 (pursuant to a deferral of our required timelines to meet such obligations that was granted in April 2021 subject only to memorialization in writing by us and the SUNY Foundation).

As discussed in and subject to the considerations referenced in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Risks—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to support our projects globally to be $4.50 to $6.00 billion in 2021 and in each of the next two fiscal years.

Given the breadth of our various planned projects in 2021, as we make progress on such projects we expect that our actual spend will be on the higher end of this range in 2021.

In connection with our operations at Gigafactory New York, we have an agreement to spend or incur $5.0 billion in combined capital, operational expenses, costs of goods sold and other costs in the State of New York through December 31, 2029 (pursuant to a deferral of our required timelines to meet such obligations that was granted in April 2021 subject only to memorialization in writing by us and the SUNY Foundation).

We also have an operating lease arrangement with the local government of Shanghai pursuant to which we are required to spend RMB 14.08 billion in capital expenditures at Gigafactory Shanghai by the end of 2023.

For details regarding these obligations, refer to Note 12, Commitments and Contingencies , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

As of March 31, 2021, we and our subsidiaries had outstanding $9.52 billion in aggregate principal amount of indebtedness, of which $1.43 billion is scheduled to become due in the succeeding 12 months.

As of June 30, 2021, we and our subsidiaries had outstanding $8.03 billion in aggregate principal amount of indebtedness, of which $1.09 billion is scheduled to become due in the succeeding 12 months.

For details regarding our indebtedness, refer to Note 10, Debt , to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Our sources to fund our material cash requirements are predominantly from our deliveries of vehicles, sales and installations of our energy storage products and solar energy systems, proceeds from debt facilities, proceeds from financing funds and proceeds from equity offerings.

As of March 31, 2021, we had $17.14 billion of cash and cash equivalents.

As of June 30, 2021, we had $16.23 billion of cash and cash equivalents.

Balances held in foreign currencies had a U.S.

dollar equivalent of $7.79 billion and consisted primarily of euros, Chinese yuan and Canadian dollars.

In addition, we had $2.15 billion of unused committed amounts under our credit facilities and financing funds as of March 31, 2021, net of amounts formerly available under the Fixed Asset Facility that was paid off and terminated in April 2021.

dollar equivalent of $4.87 billion and consisted primarily of Chinese yuan, euros and Canadian dollars.

In addition, we had $1.58 billion of unused committed amounts under our credit facilities and financing funds as of June 30, 2021.

Certain of such unused committed amounts are subject to satisfying specified conditions prior to draw-down (such as pledging to our lenders sufficient amounts of qualified receivables, inventories, leased vehicles and our interests in those leases, solar energy systems and the associated customer contracts, our interests in financing funds or various other assets;

1 unchanged sentence

For details regarding our indebtedness and financing funds, refer to Note 10, Debt , and Note 13, Variable Interest Entity Arrangements to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin and began accepting bitcoin as a form of payment for our products in certain regions, subject to applicable laws.

In the first quarter of 2021, we also sold an aggregate $272 million in bitcoin.

Net of such sales, the fair market value of our bitcoin holdings as of March 31, 2021 was $2.48 billion.

Based on our trading activity to date, we believe bitcoin is highly liquid, although we generally intend to hold our bitcoin long-term regardless of the manner of acquisition.

In the first quarter of 2021, we invested an aggregate $1.50 billion in bitcoin.

In addition, during the three months ended March 31, 2021, we accepted bitcoin as a form of payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021.

We may in the future restart the practice of transacting in digital assets for our products and services.

The fair market value of our bitcoin holdings as of June 30, 2021 was $1.47 billion.

We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.

However, digital assets may be subject to volatile market prices, which may be unfavorable at the times when we may want or need to liquidate them.

Summary of Cash Flows

Three Months Ended March 31,

Six Months Ended

(Dollars in millions)

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

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These cash inflows are offset by our payments to suppliers for production materials and parts used in our manufacturing process, operating expenses, operating lease payments and interest payments on our financings.

Net cash from operating activities changed favorably by $2.08 billion to net cash provided by operating activities of 1.64 billion during the three months ended March 31, 2021 from net cash used in operating activities of $440 million during the three months ended March 31, 2020.

This increase was primarily due to the decrease in net operating assets and liabilities of $1.44 billion and the increase in net income excluding non-cash expenses and gains of $747 million, partially offset by $101 million of net gain on digital assets.

The decrease in our net operating assets and liabilities was mainly driven by an increase in accounts payable and accrued liabilities in the three months ended March 31, 2021 as compared to a decrease in the three months ended March 31, 2020 from ramp up in production at Gigafactory Shanghai and the Fremont Factory and a smaller increase in inventory from buildup of finished goods from limited capacity to deliver or install our products at the end of the first quarter of 2020.

The decrease in our net operating assets and liabilities was partially offset by a larger increase in operating lease vehicles as Model Y direct leasing was introduced in the third quarter of 2020 and an increase in other non-current assets in the three months ended March 31, 2021 as compared to a decrease in the same period in 2020.

Net cash provided by operating activities increased by $3.24 billion to $3.77 billion during the six months ended June 30, 2021 from $524 million during the six months ended June 30, 2020.

This increase was primarily due to the increase in net income excluding non-cash expenses and gains of $1.88 billion and the overall decrease in net operating assets and liabilities of $1.36 billion.

The decrease in our net operating assets and liabilities was mainly driven by an increase in accounts payable and accrued liabilities in the six months ended June 30, 2021 as compared to a decrease in the six months ended June 30, 2020 from ramp up in production at Gigafactory Shanghai and the Fremont Factory.

The decrease in our net operating assets and liabilities was partially offset by a larger increase in operating lease vehicles as Model Y direct leasing was introduced in the third quarter of 2020.

Cash Flows from Investing Activities

Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $1.35 billion for the three months ended March 31, 2021, mainly for construction of Gigafactory Texas and Gigafactory Berlin and expansion of Gigafactory Shanghai and $455 million for the three months ended March 31, 2020, mainly for Model Y production at the Fremont Factory and Gigafactory Shanghai construction.

Additionally, net cash activities related to digital assets were $1.23 billion in the three months ended March 31, 2021 from purchases of digital assets for $1.50 billion and proceeds from sales of digital assets of $272 million.

Cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $2.85 billion for the six months ended June 30, 2021, mainly for construction of Gigafactory Texas and Gigafactory Berlin and expansion of Gigafactory Shanghai and $1.00 billion for the six months ended June 30, 2020, mainly for Model Y production at the Fremont Factory and construction of Gigafactory Shanghai and Gigafactory Berlin.

Additionally, net cash activities related to digital assets were $1.23 billion in the six months ended June 30, 2021 from purchases of digital assets for $1.50 billion and proceeds from sales of digital assets of $272 million.

Cash Flows from Financing Activities

Net cash used in financing activities during the three months ended March 31, 2021 was $1.02 billion, which consisted primarily of $1.45 billion of cash repayments upon conversions of our convertible senior notes, $294 million of repayments under our 2016 Warehouse Agreement, $151 million repayment of Solar Term Loan upon maturity and $101 million principal repayments of our finance leases.

Net cash used in financing activities during the six months ended June 30, 2021 was $2.57 billion, which consisted primarily of $1.95 billion of cash repayments upon conversions of our convertible senior notes, $614 million of repayments under our Fixed Asset Facility, $294 million of repayments under our 2016 Warehouse Agreement, $151 million repayment of Solar Term Loan upon maturity and $196 million principal repayments of our finance leases.

These cash outflows were partially offset by $623 million of net borrowings from the A utomotive Asset-backed Notes and $253 million of proceeds from exercise of stock options and other stock issuances.

See Note 10, Debt to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding our debt obligations.

Net cash provided by financing activities during the three months ended March 31, 2020 was $2.71 billion, which consisted primarily of $2.31 billion from our February 2020 public offering of common stock, net of issuance costs, $359 million of net borrowings under our vehicle lease-backed loan and security agreements (the "Warehouse Agreements"), $292 million of net borrowings under the senior secured asset-based revolving credit agreement (the “Credit Agreement”) and $160 million of proceeds from exercise of stock options and other stock issuances.

These cash inflows were partially offset by $129 million of payments of the automotive asset-backed notes and $100 million principal repayments of our finance leases.

Net cash provided by financing activities during the six months ended June 30, 2020 was $2.83 billion, which consisted primarily of $2.31 billion from our February 2020 public offering of common stock, net of issuance costs, $724 million of net borrowings under loan agreements entered into by certain Chinese subsidiaries (the "China Loan Agreements"), $514 million of net borrowings under our vehicle lease-backed loan and security agreements (the “Warehouse Agreements”), and $217 million of proceeds from exercise of stock options and other stock issuances.

These cash inflows were partially offset by $254 million of payments of the Automotive Asset-backed Notes, $177 million of payments under the senior secured asset-based revolving credit agreement (the “Credit Agreement”), collateralized lease repayments of $168 million, and $154 million principal repayments of our finance leases.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements